Question

Part 2: Problem Solving - Consolidated Financials Assume that on 1/1/X0, a parent company acquires a 70% interest in its subsidiary for a price at $480,000 over book value. The excess is assigned as follows: Asset Fair Value Useful Life Patent $320,000 8 years Goodwill 160,000 Indefinite 70% of the goodwill is allocated to the parent. Included in the attached Excel spreadsheet are the pre-consolidation financial statements for both the parent and the subsidiary.

ACT470-Portfolio-Option 1
			Consolidation Entries
	Parent	Subsidiary		Dr		Cr	Consolidated
Income Statement:
Sales	6,000,000	2,000,000					0
Cost of Goods sold	(4,000,000)	(1,200,000)					0
Gross profit	2,000,000	800,000					0
Income (loss) from subsidiary	112,000						0
Operating expenses	(1,500,000)	(600,000)					0
Net Income	612,000	200,000					0
Consolidated NI attrib to NCI							0
Consolidated NI attrib to CI							0
Statement of Ret Earnings:
BOY retained earnings	1,978,000	970,000					0
Net income	612,000	200,000					0
Dividends	(190,000)	(100,000)					0
EOY retained earnings	2,400,000	1,070,000					0
Balance Sheet:
Cash	200,000	120,000					0
Accounts receivable	600,000	400,000					0
Inventory	800,000	880,000					0
Equity investment	1,400,000						0
PPE, net	2,000,000	1,200,000					0
Patent	320,000						0
Goodwill	480,000						0
	5,800,000	2,600,000					0
Current liabilities	500,000	200,000					0
Long-term liabilities	1,100,000	600,000					0
Common stock	600,000	280,000					0
APIC	400,000	450,000					0
Retained earnings	2,400,000	1,070,000					0
Noncontrolling interest							0
	5,000,000	2,600,000		0		0	0

Answer 1

The completed table is given as below:

			Consolidation Entries
	Parent	Subsidiary		Dr		Cr.	Consolidated
Income Statement:
Sales	6,000,000	2,000,000					8,000,000
Cost of Goods sold	-4,000,000	-1,200,000					-5,200,000
Gross profit	2,000,000	800,000					2,800,000
Income (loss) from subsidiary	112,000		[C]	112,000			0
Operating expenses	-1,500,000	-600,000	[D]	40,000			-2,140,000
Net Income	612,000	200,000					660,000
Consolidated NI attrib to NCI			[C]	48,000			-48,000
Consolidated NI attrib to CI							612,000
Statement of Ret Earnings:
BOY retained earnings	1,978,000	970,000	[E]	970,000			1,978,000
Net income	612,000	200,000					612,000
Dividends	-190,000	-100,000			[C]	100,000	-190,000
EOY retained earnings	2,400,000	1,070,000					2,400,000
Balance Sheet:
Cash	200,000	120,000					320,000
Accounts receivable	600,000	400,000					1,000,000
Inventory	800,000	880,000					1,680,000
Equity investment	1,400,000				[C]	42,000	0
					[E]	1,190,000
					[A]	168,000
PPE, net	2,000,000	1,200,000					3,200,000
Patent			[A]	80,000	[D]	40,000	40,000
Goodwill			[A]	160,000			160,000
	$5,000,000	$2,600,000					$6,400,000
Current liabilities	500,000	200,000					700,000
Long-term liabilities	1,100,000	600,000					1,700,000
Common stock	600,000	280,000	[E]	280,000			600,000
APIC	400,000	450,000	[E]	450,000			400,000
Retained earnings	2,400,000	1,070,000					2,400,000
Noncontrolling interest					[C]	18,000	600,000
					[E]	510,000
					[A]	72,000
	$5,000,000	$2,600,000		$2,140,000		$2,140,000	$6,400,000